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What Happens to Business Entities When Owners or Partners Pass Away?


When you build a business, you don’t just build it for you. You also build it for your family, or your legacy. You hope that after you are gone, that your business will continue to support your family, and perhaps, carry on your name.

But will it? What happens to your business when you pass away?

Uniformity Among Documents

Unlike many other assets, a business is unique in that you may have estate planning documents that dictate what will happen to your business when you pass but you also have corporate documents, like operating agreements, partnership agreements, resolutions, or shareholder agreements, that also deal with the same situation.

The key to ensuring that your business (or your interest in the business) continues to do what you want or need, is to ensure that all of these documents work in harmony, without contradicting each other.

Sole Proprietorships

For sole proprietorships, there is a good and a bad. The good is that little planning is needed. But the bad is because there is no way to pass on a sole proprietorship, or leave it to anymore. You are, legally, the business, and when you are gone, so too is the business.

The business may have assets, like property, machinery, or IP rights, all of which can individually be left to whomever you designate. But the business cannot just pass along pursuant to corporate documents, and keep running, and absent an estate plan that handles these matters, the property that you/the sole proprietorship owned, will be part of the probate estate, and passed to whomever you designate (or intestate, if you have no estate plan).


Partnerships are a hybrid—like a sole proprietorship, the partnership will terminate on a partner’s passing. But unlike a sole proprietorship, you can take steps to ensure the business continues, by having a partnership that says what happens when a partner passes away.

That agreement can require the other partner to purchase the deceased partner’s interest, or can allow the deceased’s partner’s beneficiaries to step in the shoes of the deceased partner.

LLCs and Corporations

LLCs and corporations do not automatically terminate on the death of an owner or manager. This is good because the business continues on. But it can be difficult for the remaining owners or managers, because the deceased’s interest in the LLC, passes according to the deceased’s estate plan or intestate pursuant to state law.

This can leave LLC managers with other managers that they don’t want to work with. But like a partnership, the LLC’s operating agreement can require the LLC to buy out the interest of the beneficiaries of the deceased manager.

Probate Court Involvement

In situations where the business carries on after an owner or manager’s passing, the business needs to have a vehicle that allows it to pass to others outside of probate. If none exists, the probate court will need to manage the business, or at least, major decisions made by the business would need to be approved  by the probate court.

This is not a good situation for a business to be in, because the business can’t make on-the-fly decisions, as well as the extra cost and time of needing court approval to manage the affairs of the business.

Make sure your corporate documents work for you now, and in the future. Let us review your corporate paperwork. Call our Fort Lauderdale business lawyers at Sweeney Law P.A. at 954-440-3993 today.



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